Are Kindle eBook prices set to fall? Apple price-fixing case is just 'weeks away'

Book prices on Amazon's Kindle and other e-readers could tumble after a deal in a major price-fixing case is reportedly 'close'

Book prices on Amazon's Kindle and other e-readers could tumble after a deal in a major price-fixing case is said to be 'close'.

America's Justice Department is in the closing stages of a deal with Apple and major publishers.

The deal would call a halt to a deal struck by Apple which prevented publishers selling books via Amazon and other online stores at lower prices than via Apple's iTunes Store.

The deal has seen prices for eBooks artificially inflated so that many cost the same - or even more than - their paper counterparts.

Walter Isaacson's biography of Steve Jobs, for example, has been priced higher than the paper edition on ebook stores.

The deal could mean that pricing control over eBooks shifts from publishers to retailers such as Amazon, which would then be able to discount and offer sale prices to its consumers.

The news came in a Reuters report quoting unnamed sources.

‘It would be a positive for Amazon because the company's greatest strength is as a high-volume, low-price retailer and the wholesale model plays into that,’ said Jim Friedland, an analyst at Cowen & Co.

It's unclear what sort of knock-on effect this deal would have for European consumers. The European Commission is already investigating alleged price-fixing in the eBook market.

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The Justice Department is seeking to unravel agreements Apple secured from five publishers about two years ago, as the Silicon Valley company was launching its iPad and was seeking to break up Amazon's dominance in the digital book market.

The publishers are Simon & Schuster Penguin Group, Macmillan, a unit of and HarperCollins.

The Justice Department declined to
comment. Apple did not reply to calls seeking comment. The publishers
involved either did not return telephone calls or declined comment.

As
part of the agreements with Apple, the publishers shifted to an ‘agency
model’ that allowed them to set the price of e-books and give Apple a
30 percent cut.

Prior
to that, Amazon had operated on the wholesale model, in which
publishers sold books to retailers, which were then free to set whatever
price they wanted.

Amazon
was able to charge only $9.99 for many e-books, sometimes pricing new
releases or popular e-books below cost, to draw in shoppers.

SO WHY ARE EBOOK PRICES SO HIGH? THE DEALS THAT SENT PRICES SOARING

Late Apple co-founder Steve Jobs reportedly did not want Apple's iBook store to compete with Amazon's cheap prices, and helped broker the deal between publishers.

The European Commission is investigating claims that Apple and five publishing houses worked together to keep eBook prices artificially high.

It is also suggested that the arrangement killed competition by ensuring that Apple’s rivals, such as Amazon and Kobo, could not undercut its prices.

In The UK, the Government is partly to blame for the high cost. The Treasury has sanctioned an anomaly in the tax system which means VAT is charged at 20 per cent on eBooks, but is not applied to real books.

The boom in eBooks is a goldmine for publishers and technology firms, because the costs are a fraction of those involved in printing, transporting and selling books.

Despite the savings, the prices of blockbuster eBooks are often higher than the real thing.

The tactic worried publishers who felt readers might get used to cheaper books and that Amazon would gain more market power, putting downward pressure on sales and prices of physical books.

The Apple agreements effectively barred publishers from allowing rival retailers such as Amazon to sell the same e-books at lower prices. The Justice Department and the European Commission are examining whether the way that Apple reached its agreements with the publishers rose to the level of violations of antitrust law.

While agency pricing itself is legal, the Justice Department believes that publishers may have colluded to implement it with e-book retailers.

Apple's push for agency pricing was detailed in Walter Isaacson's biography of Apple founder Steve Jobs, who died last October. Jobs was aware of publishers' frustration with Amazon's low-price strategy and took advantage of it, according to the book.

Isaacson quotes Jobs as saying: ‘So we told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more but that's what you want anyway.' ...

So they went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'‘

When Apple entered the digital books market with its iPad in January 2010, Amazon had nearly 90 percent of the e-book market.

Amazon now has about 65 percent of the e-book market, while Barnes & Noble has 20 percent and Apple has 10 percent at most, according to Cowen & Co estimates.

As the market shifted, prices have risen.

A class action lawsuit against Apple and the publishers that was brought last year in a Manhattan court on behalf of e-book customers said the price of e-books sold by the five publishers rose 30 to 50 percent in just a few months after Apple reached its deals.